The Congressional Budget Office revealed yesterday that it vastly over-estimated the tipping point for the Cadillac Tax to hit health plan premiums. Because medical cost trends are falling much faster than was predicted in 2010, the Cadillac Tax will collect 41% less in federal premium taxes. By 2022 the Cadillac Tax will bring in 71% less in premium taxes than CBO predicted in past estimates.

Recent consultant studies have greatly increased predictions about how many companies will be hit by the Cadillac Tax, in some predictions over 80% of U.S. firms. After the CBO revision this could be a vast overstatement of the impact, particularly if medical trend continues to slow. That seems likely since the theory of a ‘post-recession bounce’ in premiums is now basically abandoned.

Two major factors have changed. CBO has finally conceded that the five-year slowdown in U.S. medical spending trend is not a fluke and will not be reversed, so premiums will rise slower and hit the tax cap later (CBO does not admit this openly yet). Also, fewer people are going into the state exchanges so the subsidies will be lower, and employers and the uninsured will pay lower penalties.